ARA: How should I handle this financial situation?

At what point do you think that it is more financially beneficial to buy a new car? I currently drive an ’01 with 130,000 miles that is good on gas and has cost me nearly nothing in repairs. I have driven it for 6 1/2 years. The problem is, it needs air conditioning, and a new exhaust system soon. I feel as though I cannot go another summer without AC, because I hate arriving to work or anywhere else with sweaty, melted makeup and extra frizzy hair.

The car is worth at least $3500 to sell, and I have about $1500-$2000 in cash to spend for a down payment. I’ve investigated leasing a car with a payment of about $200/month, which would increase my insurance payment $30/month. I could also buy a 3-4 year old car for a slightly lower payment and probably the same insurance payment that I have now. Unfortunately, the second problem is that I owe $8500 in credit card debt, and about $2500 in school loans.

What should I do? Keep the car I have and do the repairs, OR lease a new car, sell mine, and use the $$ to pay off some of the credit card debt. Any insight on this situation is appreciated.

I drive a 1993 Plymouith Acclaim, purchased used about 11 years ago. It has less than 80,000 miles on it. Never fails to start; minimal maintenance fees, good on gas. I’ll drive it til it dies.
Never buy a new car; loses value when you drive it off the lot.

How much would the AC and exhaust system cost? If it’s lower than the Kelly Blue Book value, and otherwise you’re happy with the way it runs (which you seem to be), pay for the repair and keep the car.

If you decide to upgrade, buy the car. You’ll have it after it’s paid off and can put more money towards loans.

Even if you need new a/c it would probably cost about $1000.00 The price you would pay for the new exhaust and a/c is minimal for the car due to the fact that your car has no mechanical problems. However, my husband says that if you need to repair it and the cost is the same or more than the car is actually worth then sell it out right. If you have $1500 – $2000 in cash to put down on a car, put that money towards your credit card debt. Use the cash you get from selling your car for a down payment on a newer car. No need for a brand new car. Look at a car that is maybe 2-3 years old, you can save a lot! Then, pay your credit card debt off first then the student loan. Oh yeah… cut up your credit cards!

I agree with Maggie on the used car thing. My friend, who is a (very successful) investment banker advises all his clients, no matter how wealthy, to never buy a new car. He points out, as readers mentioned above, a car loses value the moment you drive it off the lot.

Plus, you can get used cars with very low mileage. The Buick had 6K on it when I bought it in December of 2005 and I paid ~$14K less than what it cost new.

Also, I agree with the readers who say take the payment and put that amount into savings each month. I was all excited to start having that extra spending money once Big Blue was paid off, but R made encouraged me to put it in savings for honeymoon/wedding party costs. It’s great to see that bank account tick upward and the feeling that you have a nice little buffer is reassuring.

Don’t lease. You won’t have anything in return at the end of the lease. What will it cost to replace the A/C and exhaust system?

Depending on the cost to fix the current car (and assuming it will be a lot of money), I would look into buying a used, affordable compact car (Civic, Corolla, etc). Then work on paying down the credit card debt. Look at your spending and cut out a few expenses that would make a difference. For example, cancel digital cable if you have it and put that amount toward the credit card each month. Do you have any valuable items to sell? Sell them and put 100% toward the credit card. If you eat out, stop for a few months and see how much you can save.

You are confusing want and need a little. No ac sucks, but you don’t need it. Keep your car, get the exhaust system repair, and put that 200 a month you feel you can afford toward your debt.

Suck up the no ac until you’ve gotten your debt situation under control.

If you lease a new car, the net result is that you’re adding to your debt and not to your worth. Cars are a bad investment anyway, because they depreciate so fast, and having a reliable one is a benefit that you shouldn’t invest lightly. Keep it until the sum of anticipated and needed repairs exceeds what a new car payment will cost you.

I have leased my last three cars (3 year leases). I also dont have credit card debt. For me, I like driving a new car that starts every morning so I can get to my job (live in Saratoga, work in Albany). Too many things to worry about these days, I dont want my transportation to be one of them.

I agree with most of the above. Take the cash and pay down your debt. Use the trade in payoff towards the purchase of a used car. Dealerships will still allow a trade in with the issues you have listed. Let them pay for the repairs when they re-sell it.

Some dealerships offer “demo” cars, which are newer than older used cars, and have only been driven by dealership or manufacturer employees and have very decent discounts applied. It assures you that all appropriate maintainance has been kept up to date. Do not lease.

Also keep gas pricing in mind. A newer car is going to be more fuel efficient saving that extra out of pocket money. My husband bought a 2001 SUV and ends up driving my 2010 SUV to save in gas costs. (His is $100 to fill once a week and mine is right around $75 for about a week and a half.)

I’m in the same boat and think I’m going to go used car (hopefully certified) over a lease (mile limits) or fixing my car (1/2 it’s value). If you sell your car privately you should definitely put it on your credit card, as that rate is probably 2-3x your car loan rate and 10x your student loan rate

Keep/repair the car you have until the cost of repairs exceeds the car’s book value.

I was driving a 2001 up until last summer – when the cost of impending repairs exceeded the trade in value. I loved that car – I would have kept it otherwise. But I traded it in for an 07. I have never bought a “new” car – I always buy certified pre-owned. Or as VW calls them Pre-Loved :-)

I gotta say I drove around pieces of crap for years before finally getting a *BRAND NEW* 2007 VW Rabbit. If you are going to go new, research how much it retains it’s value.I know VW’s are excellent and depending on the car, are pretty good on gas mileage and low emissions. I paid about $16,500 for my car and got a trade in 3 yrs later for about $9,000. Not too shabby I think. Some people look at it as a bad investment, being that it loses it’s value so quickly, but I loved having a nice, reliable car that started every time I turned the key. Just do your research when buying any car.

Also, depending on what your credit is, Toyota I believe now is offering 0% interest rate on qualified buyers. I believe it’s only new vehicles, but the amount you will save on interest is definitely worth it.

If your AC only needs to be recharged you can do it yourself (or any friend that is mechanically inclined). They sell the kit at any autoparts store for around $20-25. I did it to one of my old cars. Took about 10 minutes and worked like a charm.

Fix the car … even if it costs you $800 between the $2000 downpayment and $200 a month for payment, you are so far ahead of the game. When monthly repairs start equaling a monthly payment for newer car, then trade up. Until then, keep what you have. Use what would be car payment to pay off other debt.

Personally, I would not lease. You have a lot of miles on that car for only owning it 6 years.

If I were in your situation and REALLY wanted a new car, I would look for a deal on a new purchase with 0% APR. I’ve never purchased a new vehicle where the payments were over $300/mo., I had to pay a finance charge, and not be able to pay off the car in more than 3 years. That’s just my formula that works for me and allows me to still live within my means, own a new vehicle, and not pay any extra money to the bank. I also hang on to my vehicle until the wheels fall off. That being said, my rule is: if I can’t afford something, I don’t buy it. I do not believe in carrying a dime of debt and it works very well for me. Good luck.

If you get a used car and are on some kind of payment plan (i.e. monthly payments, etc.) please, please get gap insurance. Basically this means that you won’t have to finish making the payments if your car is totaled before you’ve paid it off. I had a used car which was totaled while parked (i.e. I wasn’t even in the car!) and I had to finish paying it off while simultaneously trying to save enough for a down payment on a new vehicle. As a student with student debt and limited income, you can imagine how difficult this was. Insurance paid me the cash value of the car, but that wasn’t enough to finish the payments (due to interest, etc.) let alone put money toward a new car. It was a freaking nightmare. So moral of the story: get gap insurance!

Aside from the near 100% assurance of little or no maintenance headaches the first few years, there is little reason to buy a brand new car. With today’s research tools such as Carfax and Consumer Reports, you can find out more than ever about used cars. Even so, if you’ve picked one out, don’t skimp on getting it looked over by an independent garage.

What kind of car is it?? 130,000 might be reaching the end of its useful life… how are the tires, brakes, suspension on the car? If there is any chance those might need replacing in the next year I would trade it in for something used…

Another critical question that I don’t think has been addressed is what else will break? Once a car gets that many miles, it is so hard to predict what’s next. Trying to decide whether to incur a costly repair that prevents the car from running (which also would make it valueless on trade) and buying a another car at that point is not a good position to be in. Perhaps your best bet is to look at used with low miles, using your current car as a down payment.

Agree with many of the above posts – first try to charge the AC for this summer. If it doesn’t hold the charge then I would lean toward purchasing a 3 year old used car. (It could be the condenser or compressor and that is a large repair bill)
I think that 3 years old might even qualify for a new car loan at the credit unions.
You also might run into an emission and inspection issue with the exhaust, that is a consideration to possibly trade in prior to that.

I am on my sixth car and only bought one new (I needed the adjustable seat height)…demos and gently used are the way to go, let someone else take that depreciation hit the first few years.

Gap insurance is only needed if you owe more than the car is worth. Insurance pays book retail + tax…. if you owe more than that, it may be worth it. Its not like if your car was totaled and you owed money on it, you still have to pay no matter what.

The car has that mileage because I bought it with about 43k on it. I drive about 300-360 miles a week at the moment, and have put that into consideration with the lease. I would purchase 15k miles and pay for whatever else I used at the end.

As for the AC…it’s been broken for a couple of summers now. I have had it charged in the past, and am 100% positive that the whole thing needs replacement. I think it would cost between $1000-$1500 to replace (I don’t remember the figure…it was a long time ago). The exhaust is not extremely pressing, would cost over $300, and is only really part of the general maintenance for the age of the car (ie I can sell it and it wouldn’t be necessary to say anything, because there is really nothing currently “wrong”).

I know I don’t NEED ac, but I work in an office about 30 miles from where I live, so really bake during that time. And forget about stopping anywhere after work…people would tell me that I needed to go bathe in Lysol…like I hadn’t showered in a week. Obviously, moving would help…but I’m not in a position to do that now.

Anyway, if I do the repairs, I will spend between $1500 and $2000…I could then possibly sell it for slightly more, saying that I had the AC replaced…but only slightly. But who knows what could happen next with this car? New motor? Transmission? Remember, I drive 300-360 miles a week. Further, my down payment fund would be gone, and I would have no lump of cash with which to pay my high interest bills. If I use the cash for the down payment, I can use the proceeds from the sale of the car (about $3300) to pay down the much higher interest credit card debt, and use the money I would be spending on plastic payments for the car…

It seems to me you already know what tyou want to do and you are hoping people here will agree with you so you can rationalize spending the money. If that’s what you want to do then by all means go ahead. But if you have a good mechanic I find that he average car repair is under $500. If twice a year you put $500 into the car, that’s $1000 compared to $3000 in car payments. If you have driven it for 6 years with no major issues i’d say it’s a car and doesn’t mean that all of a sudden it’s going to start falling apart.

I’m not trying to get anyone to agree with me…I think I’m equally promoting each option. The only reason I said I’m leaning toward fixing is that I’m terrified to spend that much money on a car right now. But, it may be necessary.

In the past, I have seen my family spend a fortune on used cars. It got to the point where they started to lease, because it was more cost effective and less of a hassle. Now, though, cars are made a little better. At 130,000k, though…that might be the breaking point. It is a real gamble.

I have four tires that are a year old, and 2 snows used for one year. The front brakes and rotors are good…but the back…I don’t know. Does anyone replace drum brakes?

I don’t think anything can be said that hasn’t already been said…I don’t know…

I’m going to go a little against the grain a bit regarding your debt. If you’re making more than your minimum payment each month and not incurring any new credit card debt, you’re probably fine. Of course, I don’t know what your debt-to-income ratio is, which obviously changes things. Does credit card debt suck? Yeah. Is it annoying? Totally, because you’re paying interest on it and they’re making a ton of money off of you. However, financial planners will tell you that shoring up savings is FAR more important than paying down debt in lump sums for your long term financial health.

Your student loan debt is next to nothing. So long as you are making payments on time, that won’t count against you for ANYTHING, it can only help you and your credit rating.

(In other words, if you sell your car, take what you need for a downpayment and put the rest in savings, then continue to chip away at your debt at a reasonable rate.)

Having said all of that … depending on what it will cost to fix your car (I was thinking it would be $1500-2000 based on what you wrote above) will depend on whether it is worth it. I was thinking, if it is more than a couple grand, it’s really not worth it given what your car is currently worth. However, it sounds like you’ve taken good care of your car, and it is reliable, so I would say fixing it is a good bet. Then, take the money you’d use on a car payment, and put it into a car slush fund in case you need it.

Given last summer’s brutal heat, the A/C is not a necessity but it is a quality of life issue. If you’re spending that much time in your car each day, I agree that you should get that fixed.

If you do decide to sell, given how much you currently drive, I wouldn’t lease. Buy a car that’s 1-3 years old and make sure you can afford the payment.